It’s not unusual for closely-held corporations to operate through more than one division and for key employees to be on the payroll of both. If an employee’s combined salary from each corporation totals more than $110,100 excess Social Security taxes might be incurred.
There’s a way, however, to avoid this problem. Instead of each corporation issuing its own payroll check, designate one company in the group as a common paymaster, which can issue one check to the employee on behalf of all the companies involved. To do this, you must meet one of these three criteria:
• The corporations involved must have at least 50% common ownership.
• Half or more of the officers of one corporation must also be officers of another.
• The corporations must share at least 30% of their employees.
The result? Let’s say an employee is drawing a $100,000 annual salary from each of two corporations. Since the maximum Social Security tax is owed on the first $110,100 paid by each employer, the company will have to pay taxes on $200,000 in total. If a single check from the common paymaster company is issued, $89,900 of the total amount will be exempt from excess Social Security taxes.